UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-28540
VERSANT OBJECT TECHNOLOGY CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
California 94-3079392
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6539 Dumbarton Circle
Fremont, California 94555
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (510) 789-1500
1380 Willow Road
Menlo Park, CA 94025
(Former address, changed from last report)
Check whether the Issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes XNo
---
The number of shares of common stock, no par value, outstanding
as of August 11, 1997: 8,997,555
---------
Transitional Small Business Disclosure Format (check one):
YesNo X
---
<PAGE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
FORM 10-QSB
Period Ended June 30, 1997
Table of Contents
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements Page No.
Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of matters to a vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K. 16
Signature 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1997 1996
---------- --------------
(unaudited) *
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 256 $ 5,267
Short-term investments 11,398 14,716
Accounts receivable, net 9,428 4,747
Other current assets 1,962 198
---------- --------------
Total current assets 23,044 24,928
Property and equipment, net 2,502 675
Other assets 436 85
Excess of cost of investment over
fair value of
net assets acquired, net 3,218 -
---------- --------------
$ 29,200 $ 25,688
========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 849 $ -
Current portion of capitalized lease 272 226
obligations
Notes payable 106 -
Accounts payable 1,143 475
Accrued liabilities 2,496 2,374
Deferred revenue 3,735 2,811
Deferred taxes 419 115
---------- --------------
Total current liabilities 9,020 6,001
Long-term liabilities, net of current portion:
Capitalized lease obligations 249 413
Shareholders' equity:
Common stock 42,455 40,889
Accumulated deficit (22,524) (21,615)
---------- --------------
Total shareholders' equity 19,931 19,274
---------- --------------
$ 29,200 $ 25,688
========== ==============
<FN>
* Derived from audited financial statements
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
License $5,587 $ 3,000 $ 7,499 $4,971
Services 1,777 1,616 3,650 2,823
------- -------- -------- -------
Total revenue 7,364 4,616 11,149 7,794
Cost of revenue:
License 114 202 351 491
Services 1,182 645 1,965 1,190
------- -------- -------- -------
Total cost of revenue 1,296 847 2,316 1,681
Gross profit 6,068 3,769 8,833 6,113
Operating expenses:
Marketing and sales 3,902 2,127 6,506 3,855
Research and development 1,221 835 2,158 1,522
General and administrative 796 310 1,283 586
Amortization of goodwill 121 - 129 -
------- -------- -------- -------
Total operating expenses 6,040 3,272 10,076 5,963
------- -------- -------- -------
Income (loss) from operations 28 496 (1,244) 150
Interest income (expense), net 163 (9) 380 (18)
Currency translation loss (10) - (23) -
------- -------- -------- -------
Income (loss) before taxes 181 487 (887) 132
Provision for taxes 18 14 21 23
------- -------- -------- -------
Net income (loss) $ 163 $ 473 $ (908) $ 109
======= ======== ======== =======
Net income (loss) per share $ 0.02 ($0.10)
======= ========
Pro forma net income per share $ 0.07 $ 0.02
======== =======
Weighted average common and 9,139 9,033
======= ========
common equivalent shares
Pro forma weighted average common and common
equivalent shares 6,877 6,466
======== =======
<FN>
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six months Ended
June 30,
---------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (908) $ 109
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 334 163
Amortization 129 -
Deferred rent (11) -
Changes in current assets and liabilities, net of assets and liabilities
acquired in the Versant Europe acquisition:
Accounts receivable (3,994) (1,640)
Other assets (916) 35
Short term bank debt (50) -
Accounts payable 370 92
Accrued liabilities and taxes payable (183) 330
Deferred revenue 784 335
Net cash used in operating activities (4,445) (576)
-------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment (2,032) (148)
Purchases of short-term investments (9,777) -
Proceeds from sale and maturities of short-term investments 13,095 -
Purchase of Versant Europe, net of cash acquired (1,987) -
Other assets (245) (669)
Net cash used in investing activities (946) (817)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 422 1,326
Principal payments under capital lease obligations (158) 137
Proceeds from borrowings 108 300
Net cash provided by financing activities 372 1,763
-------- --------
Effect of exchange rate changes on cash 8 -
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,011) 370
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,267 1,281
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 256 $ 1,651
======== ========
<FN>
See accompanying notes
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Versant Object Technology Corporation ("Versant" or the
"Company"), without audit, pursuant to rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements and the notes thereto should
be read in conjunction with the Company's audited financial statements
included in the Company's Form 10-KSB for the year ending December 31, 1996.
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. The interim results presented herein
are not necessarily indicative of the results of operations that may be
expected for the full fiscal year ending December 31, 1997 or any other future
period.
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and it's wholly-owned
subsidiary, Versant Object Technology GmbH. All intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
Revenue consists mainly of revenue earned under software license
agreements, maintenance agreements and consulting and training activities.
Revenue from perpetual software license agreements is recognized as revenue
upon shipment of the software if no significant vendor obligations remain,
payments are due within the Company's normal payment terms and collection of
the resulting receivable is probable. In instances where a significant vendor
obligation exists, revenue recognition is delayed until such obligation is
satisfied. If an acceptance period is required, revenue is recognized upon the
earlier of customer acceptance or the expiration of the acceptance period.
Maintenance revenue is recognized ratably over the term of the maintenance
contract. Consulting and training revenue is recognized when a customer's
purchase order is received and the services are performed.
NET INCOME (LOSS) PER SHARE
Except as noted below, net income(loss) per share is computed using the
weighted average number of outstanding shares of common and common equivalents
from outstanding stock options (using the treasury stock method when
dilutive). Common equivalent shares were excluded from the computation if
their effect was antidilutive except for the three and six months ended June
30, 1996, pursuant to the SEC Staff Accounting Bulletin and Staff policy, such
computations include all common and common stock equivalent shares issued
within 12 months preceding the filing date of the registration statement for
the Company's initial public offering as if they were outstanding for all
periods presented (using the treasury stock method assuming the public
offering price). Shares of mandatorily redeemable convertible preferred stock
outstanding during the three and six months ended June 30, 1996 were included
(using the if converted method) in the computation as common equivalent shares
even though the effect is antidilutive. Primary and fully diluted net income
(loss) per common share were substantially the same in all periods presented.
<PAGE>
SOFTWARE DEVELOPMENT COST
The Company capitalizes eligible computer software development cost upon
the establishment of technological feasibility, which the Company has defined
as completion of a working model. For the periods presented, costs eligible
for capitalization were insignificant and, thus, the Company charged all
software development costs to research and development expense as incurred.
3. Acquisition
On March 26, 1997, the Company acquired Versant Object Technology GmbH
(Versant Europe), an independently owned distributor of Company's products in
Europe. The Company paid $3.6 million to the shareholder of Versant Europe
consisting of $2.0 million in cash and 167,545 shares of common stock valued
at $9.75 per share. The shares of Company's Common Stock, no par value, paid
to the shareholder of Versant Europe were issued in a transaction exempt from
registration under the Securities Act of 1933, as amended, by virtue of
Section 4 (2), thereof. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the results of operations of Versant Europe
are reflected in the condensed consolidated financial statements commencing on
the date of acquisition.
The acquisition of Versant Europe resulted in the Company recording an
intangible asset representing the cost in excess of fair value of the net
assets acquired in the amount of $3.3 million, which is being amortized over a
seven- year period. Consolidated operations for the six months ended June 30,
1996 and 1997 include total revenue and operating expenses from Versant Europe
of approximately $2.2 million and $1.3 million, respectively, for the period
from date of acquisition to June 30, 1997.
The table below presents the pro forma results had the Company's
acquisition of Versant Europe occurred at the beginning of 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
------------------- ------------------
<S> <C> <C>
Revenue $ 11,539 $ 8,177
Net Loss $ (1,022) $ ( 742)
Net loss per share $ (0.11) $ (0.13)
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
and Section 27A of the Securities Act of 1933, as amended, which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below and in the Company's Form SB-2
Registration Statement, declared effective by the SEC on July 17, 1996, the
Form 10-KSB for the year ended December 31, 1996 and the Form 10-QSB for the
quarter ended March 31, 1997 that could cause actual results to differ
materially from historical results or those anticipated in the forward-looking
statements. The Company has identified with a preceding asterisk ("*") various
sentences within this Form 10-QSB which contain such forward-looking
statements, and words such as "believes," "anticipates," "expects," "may,"
"future," "intends" and similar expressions are intended to identify
forward-looking statements. In addition, the remainder of this section, which
has no asterisks for improved readability, includes a substantial number of
forward-looking statements. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that
may arise after the date of this report.
Substantially all of Versant's revenue has been derived from (i) sales of
development and deployment licenses for the Versant Object Database Management
System (the "Versant ODBMS") and related products, (ii) related maintenance
and support, training, consulting and nonrecurring engineering fees (the
"Associated Services") and (iii) the resale of licenses, maintenance, training
and consulting for third-party products that complement the Versant ODBMS
("Third-Party Products"). The Company released version 5.0 of the Versant
ODBMS, an enhanced version of the core ODBMS engine, in the first quarter of
1997. Included with the release of version 5.0 were two Internet products,
Versant Web and Versant Internet Adapter. In the second quarter of 1997, the
Company released and shipped another Internet product, the Versant Java
Language Interface. In addition, the Company has developed a product that
allows access to data stored in a Versant database via the Internet or
corporate intranets. The Company currently expects that the sales of licenses
of the Versant ODBMS and Associated Services will be the Company's principal
sources of revenue for the foreseeable future. The Company has in the past
been and expects in the future to be primarily dependent on the
telecommunications market. The Company is also placing significant emphasis on
expanding its position in the Internet market. The Company's future operating
results will depend upon its ability to expand market acceptance of the
Versant ODBMS and to a lesser extent the market acceptance of its Internet
products.
The Company's operating results have varied significantly in the past and
are expected to vary significantly in the future, on a quarterly and annual
basis, as a result of a number of factors, many of which are outside the
Company's control. These factors include demand for the Company's products and
services and the size, timing and structure of significant licenses by
customers. The Company's license revenue is substantially dependent on orders
booked and shipped in that quarter, and historically a majority of the
Company's revenue in any quarter has been recorded in the third month of that
quarter, with a concentration of such revenue in the last few days of the
quarter. Due to these and other factors, the Company's revenue for any future
period will likely vary significantly from any prior period, and it is
impossible to predict revenue for any period prior to its end.
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having higher total revenue and income from
operations than the first quarter, and often-subsequent quarters, of the
following year. The Company believes that the seasonal pattern of its revenue
has resulted primarily from the budgeting cycles of its customers and the
structure of the Company's sales commission program, and the Company believes
that this pattern is likely to continue for the foreseeable future. However,
there can be no assurance that this pattern will continue.
A significant portion of the Company's total revenue has been, and the
Company believes will continue to be, derived from a limited number of orders
placed by large organizations. The timing of such orders and their fulfillment
has caused, and likely will continue to cause, material fluctuations in the
Company's operating results, particularly on a quarterly basis. In the second
quarter of 1997, one customer, the U.S. Government, accounted for
approximately 40% of total revenue. Further, in the second quarter of 1997,
approximately 20% of the Company's license revenue were derived from customers
in the telecommunications industry. There can be no assurance that the Company
will earn comparable revenue from these customers or this industry in future
periods. The Company's sales cycle, which varies substantially from customer
to customer, often exceeds six months and can extend to a year or more.
Because of this lengthy sales cycle and the relatively large average dollar
size of individual licenses, lost or delayed sales can have a significant
impact on the Company's operating results for a particular period.
Although Versant was profitable in the second quarter of 1997, there can
be no assurance that the Company will be profitable on a quarterly or annual
basis in the future. The Company's limited operating history and the relative
immaturity of its market make the prediction of future operating results
impossible. The market for the Company's products is highly competitive, and
the Company may experience increasing pricing pressures from both its current
competitors and new market entrants, particularly as other database vendors
enter the object-oriented and object-relational database markets. Many of the
Company's competitors have significantly greater resources and name
recognition than the Company. Any material reduction in the price of the
Company's products would materially adversely affect the Company's operating
results.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement items
bear to total revenue for the three and six months ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
License 75.9% 65.0% 67.3% 63.8%
Services 24.1% 35.0% 32.7% 36.2%
------ ------ ------ ------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
License 1.5% 4.4% 3.2% 6.3%
Services 16.1% 14.0% 17.6% 15.3%
------ ------ ------ ------
Total cost of revenue 17.6% 18.4% 20.8% 21.6%
Gross profit 82.4% 81.6% 79.2% 78.4%
Operating expenses:
Marketing and sales 53.0% 46.1% 58.4% 49.5%
Research and development 16.6% 18.1% 19.4% 19.5%
General and administrative 10.8% 6.7% 11.5% 7.5%
Amortization of goodwill 1.6% 0.0% 1.2% 0.0%
------ ------ ------ ------
Total operating expenses 82.0% 70.9% 90.4% 76.5%
------ ------ ------ ------
Income (loss) from operations 0.4% 10.8% -11.2% 1.9%
------ ------ ------ ------
Interest income (expense), net 2.2% -0.2% 3.4% -0.2%
Currency translation loss -0.1% 0.0% -0.2% 0.0%
Income (loss) before taxes 2.5% 10.5% 8.0% 1.7%
------ ------ ------ ------
Provision for taxes 0.3% 0.2% 0.2% 0.3%
------ ------ ------ ------
Net income (loss) 2.2% 10.3% -8.1% 1.4%
====== ====== ====== ======
</TABLE>
<PAGE>
Revenue
The Company's total consolidated revenue increased 60% from $4.6 million
in the second quarter of 1996 to $7.4 million in the second quarter of 1997.
This increase was principally due to a substantial increase in domestic and
international license sales to new commercial customers and the U. S.
Government and deployments by existing customers. The Company's total
consolidated revenue increased 43% from $7.8 million for the six months ended
June 30, 1996 to $11.1 million in the corresponding period of 1997. This
increase was principally due to an expansion of domestic and international
sales of the Company's products and services as well as deployments by
existing customers.
License revenue increased 86% from $3.0 million in the second quarter of 1996
to $5.6 million in the second quarter of 1997. The increase in license revenue
was primarily due to a large sale to the U.S. Government, increased
international license sales, including those sales made through Versant
Europe, deployments by existing customers and royalty revenue. License revenue
increased 51% from $5.0 million for the six months ended June 30, 1996 to $7.5
million in the corresponding period of 1997. The increase in license revenue
was primarily due to increased domestic and international license revenue
resulting from increased sales to new commercial customers and the U.S.
Government and the acquisition of Versant Europe in March 1997. The
acquisition of Versant Europe resulted in the Company recognizing
approximately $1.0 million of license revenue in each of the second and first
quarter of 1997, respectively, that would have been recognized only at the 40
percent royalty rate had Versant Europe not been acquired. License revenue as
a percentage of total revenue increased from 65% to 76% from the second
quarter of 1996 to the second quarter of 1997, and from 64% to 67% from the
six months ended June 30, 1996 to the corresponding period of 1997 due to
license revenue increasing at a faster rate than service revenue.
Services revenue increased 10% from $1.6 million in the second quarter of
1996 to $1.8 million in the second quarter of 1997. Services revenue increased
29% from $2.8 million for the six months ended June 30, 1996 to $3.7 million
in the corresponding period of 1997. The increase in services revenue was
primarily due to increased domestic and international consulting business
including $100,000 and $300,000 of services revenue in each of the second and
first quarter of 1997, respectively, that would have been recognized only at
the 25% royalty rate had Versant Europe not been acquired, increased
maintenance revenue on a larger installed base and to a lesser extent,
increased customer training revenue.
Export sales increased from 15% of the Company's total revenue in the
second quarter of 1996 to 20% in the second quarter of 1997. Export sales
accounted for approximately 20% of the Company's total revenue for the six
months ended June 30, 1996 compared to 26% in the corresponding period of
1997. The primary sources of the Company's export sales are direct sales in
Australia, Asia, Canada and, since March 1997, direct sales by Versant Europe
throughout Europe and United Kingdom. Prior to the acquisition of Versant
Europe by the Company in March 1997, the Company received a royalty on sales
of licenses and services made by Versant Europe. The increase in export sales
in the second quarter and for the six months ended June 30, 1997 as a
percentage of total revenue was principally due to Versant Europe sales which
resulted in approximately $1.0 million and $2.0 million in license revenue,
respectively, rather than a royalty of approximately 40 percent of such
license revenue. *The Company intends to expand its sales and marketing
activities outside the United States, including but not limited to Europe and
Asia, which will require significant management attention and financial
resources. *As a result of the Versant Europe acquisition and the continued
emphasis on expanding internationally, the Company expects export sales as a
percentage of total revenue to generally continue at the second quarter of
1997 level. The Company's European as well as other international operations
are subject to a number of risks. Such risks include but are not limited to
longer receivable collection periods, unexpected changes in regulatory
requirements, dependence on independent resellers, multiple and conflicting
regulations and technology standards, import and export restrictions and
tariffs, difficulties and costs of staffing and managing foreign operations,
potentially adverse tax consequences, foreign exchange fluctuations, the
burdens of complying with a variety of foreign laws and the impact of business
cycles and economic instability outside the United States.
Cost of Revenue
Total cost of revenue increased 53% from $847,000 in the second quarter
of 1996 to $1.3 million in the second quarter of 1997 principally as a result
of a substantial increase in the cost of services revenue resulting from the
expansion of the consulting, training and support organizations offset by a
decrease in cost of license revenue principally due to a reduction in bad debt
reserves. Total cost of revenue as a percentage of total revenue was stable
at 18% in the second quarter of 1996 and 18% in the second quarter of 1997.
Total cost of revenue increased 38% from $1.7 million for the six months ended
June 30, 1996 to $2.3 million in the corresponding period of 1997 due to a
substantial increase in the cost of services revenue offset by a decrease in
cost of license revenue. Total cost of revenue as a percentage of total
revenue was essentially stable at 22% for the six months ended June 30, 1996
and 21% in the corresponding period of 1997.
Cost of license revenue consists primarily of royalty obligations
incurred by the Company under porting services agreements, product packaging,
adjustments to bad debt reserves, freight, user manuals, product media and
production labor costs and product royalty obligations incurred by the Company
when it sub-licenses Third-Party Products. Cost of license revenue decreased
44% from $202,000 or 7% of license revenue in the second quarter of 1996 to
$114,000 or 2% of license revenue in the second quarter of 1997, primarily
due to a significant increase in license revenue with minimal associated cost
and a reduction in bad debt reserves based on management's assessment of the
adequacy of such reserves, offset by increases in product packaging, freight,
user manuals, product media and production labor costs. Cost of license as a
percentage of license revenue decreased 29% from $491,000 or 10% of license
revenue for the six months ended June 30, 1996 to $351,000 or 5% of license
revenue in the corresponding period of 1997 primarily due to increased license
revenue and the reduction in bad debt reserves.
Cost of services revenue consists principally of personnel costs associated
with providing training, consulting, technical support and nonrecurring
engineering work paid for by customers. These costs increased 83% from
$645,000 or 40% of services revenue in the second quarter of 1996 to $1.2
million or 67% of services revenue in the second quarter of 1997. The increase
was primarily due to increased personnel costs resulting from an increase in
management, consulting and technical engineers and administrative staff. Cost
of services increased 65% from $1.2 million or 42% of services revenue for the
six months ended June 30,1996 to $2.0 million or 54% of services revenue in
the corresponding period of 1997. The increase was primarily due to an
increase in management, engineers and administrative staff in the consulting,
training and support organization. Cost of service revenue as a percentage of
services revenue has increased due to staff additions in the consulting,
training and support organizations without an immediate corresponding increase
in consulting and training revenue resulting from the employee training time
required prior to their assignment to billable consulting engagements and
training courses as instructors. There can be no assurance that the Company
will be able to put such newly trained persons to productive use. * The cost
of services as a percentage of services revenues may vary between periods due
to the mix of services provided by the Company and the resources used to
provide these services.* The Company anticipates that cost of services revenue
will increase in absolute dollar terms and may increase slightly as a
percentage of services revenue in the near future. *To the extent that
services revenue increases relative to license revenue, overall gross margins
would decline, which could have a material adverse effect on the Company's
operating results and financial condition.
Operating Expenses
Marketing and sales expenses consist primarily of marketing and sales
personnel costs, including sales commissions, bonuses, recruiting and travel,
advertising, public relations, seminars, trade shows, product descriptive
literature, product management, sales offices and mailings. Marketing and
sales expenses increased 83% from $2.1 million in the second quarter of 1996
to $3.9 million in the second quarter of 1997. Marketing and sales expenses
increased 69% from $3.9 million for the six months ended June 30, 1996 to $6.5
million for the corresponding period of 1997. The increases in marketing and
sales expenses for both periods were due to increases in sales and marketing
personnel, higher commission expenses associated with higher revenue,
increased marketing activities, including an offsite customer conference,
direct customer mailings, increased public relations costs associated with the
announcement of products, trade show and related promotional expenses. In
addition, Versant Europe added marketing and sales expenses of approximately
$912,000 in the second quarter of 1997 and $1.1 million for the six months
ended June 30, 1997. Marketing and sales expenses as a percentage of total
revenue increased from 46% in the second quarter of 1996 to 53% in the second
quarter of 1997. Marketing and sales expenses as a percentage of total revenue
increased from 49% for the six months ended June 30, 1996 to 58% for the
corresponding period of 1997. The increase in marketing and sales expenses as
a percentage of total revenue was due to a higher growth in marketing and
sales expenses to promote and support product and services sales when compared
to total revenue growth. *The Company expects to continue hiring additional
marketing and sales personnel domestically and in Europe and to continue
substantial marketing and sales activities in the U.S, and, accordingly,
profitability will be adversely affected if such additional expenditures do
not result in increased revenue.
Research and development expenses consist primarily of salaries,
recruiting and personnel-related expenses, travel, the costs of an ISO 9001
quality program, depreciation of development equipment and supplies. Research
and development expenses increased 46% from $835,000 or 18% of total revenue
in the second quarter of 1996 to $1.2 million or 17% of total revenue in the
second quarter of 1997. Research and development expenses increased 42% from
$1.5 million or 20% of total revenue for the six months ended June 30, 1996 to
$2.2 million or 19% for the corresponding period of 1997. The increases in
research and development expenses for both periods were primarily
attributable to an increase in the number of software engineers for product
development and quality assurance including related recruiting expenses as
well as the costs of funding ongoing engineering activities in India, the
expense of completing the ISO 9001 quality certification program and increased
depreciation charges on purchases of engineering equipment. To date, nearly
all research and development expenditures are expensed as incurred. *The
Company anticipates that it will continue to devote substantial resources to
research and development.
General and administrative expenses consist primarily of salaries, recruiting
and other personnel-related expenses for the Company's accounting, human
resources, management information systems, legal and general management
functions. In addition, general and administrative expenses include investor
relations, legal and audit costs. General and administrative expenses
increased 157% from $310,000 in the second quarter of 1996 to $796,000 in the
second quarter of 1997. General and administrative expenses increased 122%
from $586,000 for the six months ended June 30, 1996 to $1.3 million expenses
for the corresponding period of 1997. This increase was primarily due to the
inclusion of $151,000 in general and administration expenses related to
Versant Europe, increased employment and certain costs associated with the
relocation and ongoing operation of corporate headquarters as well as legal,
accounting and investor relation costs associated with being a public company.
General and administrative expenses as a percentage of revenue increased from
7% in the second quarter of 1996 to 11% in the second quarter of 1997. General
and administrative expenses as a percentage of revenue increased from 8% of
total revenue for the six months ended June 30, 1996 to 12% of total revenue
in the for the six months ended June 30, 1997. This increase was primarily due
to increased personnel costs, increased cost of being a public company, the
costs associated with the relocation and operation of the new corporate
headquarters and the inclusion of the general and administration expenses of
Versant Europe.*The Company believes that the dollar amount of its general and
administrative expenses will increase through most of 1997 due to the and cost
associated with the move and ongoing operation of the new corporate
headquarters, which has resulted in higher rent and related occupancy costs,
and to a lesser extent, inclusion of the general and administration expenses
of Versant Europe as well as the continued incurrence of additional costs
related to being a public company with significant international operations.
Interest income (expense) and other includes interest earned on the Company's
cash reserves and interest expense related principally to leases and
short-term European bank debt as well as exchange rate gains or losses. The
increase from a net interest and other expense balance of ($9,000) in the
second quarter of 1996 to net interest and other income of $163,000 in the
second quarter of 1997 was principally due to the interest earned on the
proceeds received from the Company's initial public offering. The increase
from a net interest and other expense balance of ($18,000) for the six months
ended June 30,1996 to a net interest and other income of $380,000 for the
corresponding period of 1997 was also principally due to the interest earned
on the proceeds received from the Company's initial public offering.
Income (Loss) Per Share
The Company's income (loss) per share was $0.02 and ($0.10) for the second
quarter of 1997 and for the six months ended June 30, 1997, respectively. was
based on a weighted average outstanding number of shares of 9,139,000 and
9,033,000, respectively. These weighted average numbers reflect the shares
issued in the Company's initial public offering in July 1996, shares of
Common Stock issued to the shareholder of Versant Europe in March 1997 in
connection with the acquisition of Versant Europe and the sale of shares of
Common Stock to employees participating under the Company's stock plans.
Liquidity and Capital Resources
Cash and cash equivalents decreased $5.0 million from $5.3 million at December
31, 1996 to $256,000 at June 30, 1997. For the six months ended June 30, 1997,
the Company's operating activities used $3.4 million primarily as a result of
a significant increase in accounts receivable, the funding of the net loss
for the period, an increase in other assets and a decrease in accrued
liabilities and taxes payable which amounts were partially offset by a a
substantial increase in deferred revenue and an increase in accounts payable.
Investing activities used cash of $858,000 primarily as a result of the
purchase of $9.8 million in short-term investments, payment of the $2.0
million cash portion of the acquisition of Versant Europe and the $1.9 million
acquisition of equipment and payment of the cash portion of the lease security
deposit on the new headquarter facility offset in part by $13.1 million in
proceeds from the maturity of short term investments. Financing activities
provided cash of $362,000 primarily due to proceeds from the sale of common
stock to employees offset by the principal payments on capital leases.
Short-term investments decreased by $3.3 million from $14.7 million at
December 31, 1996 to $11.4 million at June 30, 1997. The decrease in
short-term investments resulted from the maturity of $13.1 million in
short-term investments offset by the purchase of $9.8 million in short-term
investments. The company's short-term investments consist of United States
Treasury Bills. *Management expects that, in the future, cash in excess of
current requirements will be invested in short-term, interest-bearing,
investment grade securities.
The Company's total assets increased by 14% from $25.7 million at December 31,
1996 to $29.2 million at June 30, 1997. The increase in total assets was
primarily due to an increase in the accounts receivable balance due to
increased revenue, the cash and stock acquisition of Versant Europe resulting
in a $3.2 million balance in excess of cost over fair value of the assets
acquired and the purchase of $1.9 million in property and equipment.
The Company's total current liabilities increased 50% from $6.0 million at
December 31, 1996 to $9.0 million at June 30, 1997. This increase was
primarily due to increases in deferred revenue, short-term borrowings assumed
as a result of the acquisition of Versant Europe, accounts payable, VAT and
other taxes payable and issuance of a note payable to secure the lease on the
new corporate headquarters facility.
The Company's total shareholders' equity increased 3% from $19.3 million
at December 31, 1996 to $19.9 million at June 30, 1997. This increase
primarily results from the issuance of 167,545 shares of common stock valued
at $1.6 million to the shareholder of Versant Europe in connection with the
acquisition of that company and the sale of common stock to employees
participating in the employee stock purchase plan offset by a net loss of
$908,000 for the six months ended June 30, 1997.
The Company maintains a revolving credit line with a bank that expires
June 1, 1998. The maximum amount that can be borrowed under the revolving
credit line is $5.0 million. As of June 30, 1997, a stand by letter of credit
issued on behalf of Versant Europe in the amount of $1.0 million has reduced
the amount available to $4.0 million. Borrowings under the revolving credit
line are limited to 80 % of eligible accounts receivable and are secured by a
lien on substantially all of the Company's assets (which lien shall be
released at such time and for so long as the Company meets certain net profit
and tangible net worth tests.) These borrowings bear interest at the bank's
prime lending rate (currently at 8.5 percent.) The loan agreement contains
certain financial covenants and also prohibits cash dividends and mergers and
acquisitions without the bank's prior approval. The Company is currently in
compliance with these covenants. *The Company believes its available cash,
cash equivalents and short-term investments and credit line will satisfy the
Company's projected working capital and capital expenditure requirements at
least for the next 12 months.
<PAGE>
PART II OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June 5,
1997 in Redwood City, California. Of the 8,961,345 shares of the Company's
Common Stock outstanding as of April 22, 1997, the record date for the Annual
Meeting, 6,698,838 shares were present or represented by proxy at the meeting.
The following matters were submitted to a vote of the shareholders.
(1) To elect the following five nominees to serve as Directors of the
Company:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- ------------------- ------------ --------------
<S> <C> <C>
David Banks 6,692,482 6,356
Mark Leslie 6,687,252 11,586
Stephen J. Gaal 6,674,635 24,203
Lawrence K. Orr 6,686,152 12,686
James Simpson 6,687,252 11,586
</TABLE>
The five nominees were elected as Directors of the Company.
(2) To amend the Company's 1996 Directors Stock Option Plan to increase
the number of shares
of Common Stock reserved for issuance thereunder by 50,000 shares, from 75,000
shares to 125,000 shares:
<TABLE>
<CAPTION>
<S> <C>
Votes for: 4,955,192
Votes against: 128,039
Votes abstaining: 16,724
</TABLE>
The proposal carried. The vote required was a majority of the shares of Common
Stock present in
person or represented by proxy at the Annual Meeting voting on this matter
(without counting broker non-votes and abstentions toward the vote required),
or at least 2,541,616 shares of the Company's Common Stock.
(3) To amend the Company's 1996 Employee Stock Purchase Plan to increase
the number of shares of
Common Stock reserved for issuance thereunder by 200,000 shares, from 125,000
shares to 325,000 shares.
<TABLE>
<CAPTION>
<S> <C>
Votes for: 4,923,532
Votes against: 169,623
Votes abstaining: 6,800
</TABLE>
The proposal carried. The vote required was a majority of the shares of the
Common Stock present
in person or represented by proxy at the Annual Meeting voting on this matter
(without counting broker non-votes and abstentions toward the vote required),
or at least 2,553,378 shares of the Company's Common Stock.
(4) To amend the Company's 1996 Equity Incentive Plan to increase the
number of shares of Common
Stock reserved for issuance thereunder by 800,000 shares, from 850,000 plus
any shares remaining under the Company's 1989 Stock Option Plan to 1,650,000
shares plus any shares remaining under the Company's 1989 Stock Option Plan.
<TABLE>
<CAPTION>
<S> <C>
Votes for: 4,709,222
Votes against: 338,061
Votes abstaining: 7,300
</TABLE>
The proposal carried. The vote required was a majority of the shares of
Common Stock present in
person or represented by proxy at the Annual Meeting voting on this matter
(without counting broker non-votes and abstentios toward the vote required),
or a least 2,523,642 shares of the Company's Common Stock.
<PAGE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed herewith.
(b) On April 9, 1997, the Company filed a Form 8-K to report the
acquisition of Versant Europe, the terms of which described in Part I of the
Form 10-QSB filed for the quarter ended on March 31, 1997 and in Part I of
this Form 10-QSB. The financial information and pro forma financial
information required to be filed pursuant to Item 7 (a) and 7(b) of the Form
8-K filed on April 9, 1997 was not available at the time of filing the Form
8-K. On June 5, 1997, a Form 8-K/A was filed to report the financial
information and pro forma financial information required to filed pursuant to
Item 7 (a) and 7(b) of the Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERSANT OBJECT TECHNOLOGY CORPORATION
Date:, August 14, 1997 /s/ Gary Rhea
- ----------------------- ---------------
Gary Rhea
Vice President Finance and Administration.
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal
Financial Officer)
